Tax Benefits
Why do people worldwide call alpacas the world's finest livestock
investment? For any investment to be valuable, it must possess qualities
that make it desirable. Precious gems and metals are scarce, real estate
provides shelter and natural resources, oil provides energy, bonds earn
interest, and stocks are supposed to grow and increase in value. Alpaca investment
shares many of these investment attributes. Alpacas are in strong demand
worldwide, and people pay high prices for them. They are scarce, unique,
and the textiles produced from their fiber are known in the fashion
centers of Paris, Milan, and Tokyo. In 2006 in the USA, there were only 100,000 registered
alpacas as compto the 5 million alpacas in South America. Miniature llamas are even rarer; only about 600 registered mini-llamas in the USA!
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Note: Even livestock investments are not recession-proof. It’s best to have a tax attorney associated with a top-rated San Diego accounting firms to handle your financial budgeting.
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There are excellent profit
opportunities and tax advantages available to alpaca breeders.
Historically, the alpaca's value has sustained ancient cultures, such as
the Incas of Peru, and today alpacas are the sustaining economic force for
millions of South Americans.
There are two ways of investing in alpacas. The active, or hands-on
method, where you actively raise your animals yourself for profit, and
the passive, or agisted method, where you invest in the animals
which are boarding on someone else's ranch.
As a breeder, you can depreciate a male or female alpaca used for
breeding purposes over a five-year period. Breeding animals are considered
a capitol asset. Furthermore, the first year that the capitol asset is
acquired, there is a maximum of $18,500, which can be used as a business
expense item. Income derived from the sale of capitol assets is usually
taxed at a lower rate than that of income derived from other sources, such
as regular earnings. Any expenses, which you incur, such as veterinary
care, feed bills, or any other costs associated with the raising of your
alpacas, are deductible. As an active breeder there is also the ability to
depreciate tangible property, such as barns and fences, as well as
breeding stock to be considered.
Offset Taxable Income. Your alpaca farm may generate taxable losses that may be used to offset taxable income from other sources.
Alpaca breeding is an excellent way to accomplish tax-deferred wealth
building. The small farmer or investor can purchase several alpacas and
allow the herd to grow without paying income taxes on the increased value
of that herd.
Agisting Benefits. If you agist your alpacas, your tax advantages will vary from that of
an active owner, but they will still be very attractive. The main
difference is that all of your expenses incurred in the raising of the
alpacas can used as deductions against your profit, until such time as you
sell the alpacas.
This is only a short, and by no means complete, summary of the tax
advantages available to you as an alpaca breeder. The IRS publication
#225, The Farmers Tax Guide, is very helpful. We strongly recommend that
you consult an accountant or tax advisor, who is familiar with breeding
livestock and farming issues.
You may want to agist, or board, your alpacas with an established
alpaca owner for a while. The fees are reasonable, usually only a few
dollars per day and, of course, this would be a tax deductible expense.
This will also give you the option of purchasing one alpaca at a time.
Alpacas are herd animals and need to live with other alpacas, as they can
actually become very stressed if separated. That is why we strongly
suggest the purchase of at least two if you are going to take them home to
raise yourself.
Many spinners and weavers will purchase a neutered male alpaca, so as to
have an available source of the world's finest fiber. Some people may want
to purchase one or two animals as a way to accumulate the funds required
for the college education of their children. The purchase of just two
breeding females is a good start toward that end. Given a ten year period,
those two original females can very conservatively grow into a herd of
thirty or more alpacas! Of course, you may want to purchase a male to use
as a herd sire, or you can take advantage of the many herd sire animals
available for a stud fee. Again, if you don’t wish to take on the task of
breeding your own animals agistment would be an excellent option for you.
The purchase of alpacas for investment is always a personal decision,
and you should investigate fully the many options open to you. There is
always a risk involved in the purchase of any kind of livestock, and
alpacas are no exception.
They are however, extremely hardy and easy-to-raise, and they are 100%
insurable for mortality and theft. Actually, we don’t know of a better
animal to invest your money or your love in!
Profitibility
Is it profitable to raise and market alpacas? That is often the bottom
line question. It is said that "Alpacas are the world’s finest livestock
investment" for a very good reason. The worldwide demand for alpacas and
their fiber has been strong and has continued to increase yearly. The
demand for the animals exceeds the supply. They produce only one cria a
year, so the population of alpacas increases slowly. Importation from
South America is limited by difficulty of regulations and quarantine,
cost, and the strict guidelines imposed by the Alpaca Registry. A
situation where demand is high, coupled with a restricted supply creates a
market for alpacas where prices are stable. It is commonplace for the
female offspring of an alpaca to sell for the same price as the investor
paid for the dam. Male offspring, if they are of herdsire quality, can
bring several thousands of dollars more than the dam. The alpaca business
is not a get-rich-quick business. It takes work and dedication just like
any other business, but yes there is profit to be made in this wonderful
business. By the way, can you think of another business where your
investment can be one hundred percent insured?
Stable Prices. Will alpaca prices stay at their current levels? It is expected that
prices will be stable for many more years. We in the industry are working
to improve our textile market. As the demand for more fiber increases, the
demand for more alpacas will also increase. We are confident that the
alpaca industry will remain healthy and viable.
Is the financial gain the only reason that people invest in alpacas?
Typically, people invest in alpacas for two reasons. One is the financial
investment, and the other is for the lifestyle investment. There is not
another business that we know of that can offer such a good return on your
investment while affording a lifestyle that is so satisfying to the soul.
Raising alpacas is not just the investment of a lifetime, it’s an
investment in a lifestyle in which your whole family can participate.
Is it for everyone? No it isn’t for everyone, but if you think it is
something that you would enjoy, if you love the animals and want to be
part of one of the most dynamic businesses in the world, but still be able
to keep in touch with the basics of life, then it could be for you.
Tax Deferred Wealth Building
Alpaca breeding also allows for wealth building, while deferring tax on
your investment's increased value. A small farmer can purchase several
alpacas, and then allow their herd to grow over time without paying tax on
its increased size and value. If the same amount of money was invested in
a Certificate of Deposit, any interest earned would be currently taxable.
In addition, the C.D. could not be depreciated, thereby offsetting the
amount of tax due.
IRS Code Section 179 Deduction
This deduction is available every year when you purchase certain
assets, assuming that you have not used the deduction on a computer or
some other qualifying asset. Many people do not understand that you can
use this deduction to write off your purchase of up to $24,000 worth of
alpacas annually. This following example takes into consideration IRS code
section 179.
Item |
Amount |
Purchase price one or more
alpacas |
$24,000 |
Section 179 tax
deduction |
(24,000) |
Tax savings 50% (tax bracket
50%) |
(12,000) |
Actual after tax cost out of
pocket |
$12,000 |
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If you are in the 50% tax bracket, the government will
reduce your taxes by 50% of the cost of $24,000 worth of alpacas each
year. This deduction is available for all taxpayers. To see how much this
will benefit you, calculate your tax bracket and multiply it by the amount
of your purchase up to $24,000. The amount of this deduction is scheduled
to go higher in future years.
An Additional 30% First Year Depreciation
There are important changes for alpaca breeders in the recently-enacted
Job Creation and Worker Assistance Act of 2002. In an effort to stimulate
the economy, Congress is giving taxpayers an extra 30% first-year
depreciation write-off for most new capital assets (other than buildings)
acquired after September 10, 2001, and before September 11, 2004, and
placed in service before 2005. In effect, this additional write-off means
that you can recover more of the cost of a business asset, such as an
alpaca, in the year you place it in service.
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